Appreciation and Depreciation

key terms

The home currency becomes relatively more expensive for foreigners to buy. Appreciation also means that foreign currency becomes relatively cheaper for you to buy.

If prices in both countries remain the same, an appreciation will make foreign goods relatively cheaper to you, leading to an increase in imports. It also means that, even if prices remain the same, your goods will be more expensive to foreigners. They will buy less of your goods and exports will fall. As a result, your country's net exports will fall.

The home currency becomes relatively cheaper for foreigners to buy. Depreciation also means that foreign currency becomes relatively more expensive for you to buy.

If prices in both countries remain the same, depreciation will make foreign goods relatively more expensive to you, leading to a fall in imports. It also means that, even if prices remain the same, your goods will be cheaper to foreigners. They will buy more of your goods and exports will rise. As a result, your country's net exports will increase.